(RFG) Donut King ++ BB's Coffee

[tommy]

Yawn...
http://www.smh.com.au/news/Business/...623974238.html


Retail Food Group extends Brumby offer

June 27, 2007 - 3:49PM

Retail Food Group Ltd (RFG) has extended its offer for Brumby's Bakeries Holdings Ltd by a fortnight.

The offer, under which RFG is offering Brumby's shareholders $3.40 per Brumby's share, will now close at 1700 AEST on July 18.

The company said it had offered the extension because a number of Brumby's shareholders had indicated they would prefer to accept the offer in the next financial year - fiscal 2008.

"We wish to ensure that all Brumby's shareholders have every opportunity to maximise the value of the offer," RFG chief executive Tony Alford said.

"The extended offer period will give shareholders additional time to accept the offer post 30 June 2007, should they choose to do so."

RFG announced the off-market takeover bid for Brumby's on May 4 and the company's board gave its unanimous support for the offer, short of a better bid, on May 14.

As at 1700 AEST on June 26, RFG had gained 5,593,274 Brumby's shares, representing a stake in the company of 43.4 per cent.

The Brumby's directors, who currently control 37.12 per cent of the company, have indicated that they intend to accept RFG's offer in the new financial year.

[tommy]

RFG takeover of Brumbies now a done deal, yawn...

http://sa.iguana2.com/cache/fc2e7efa...RFG-189546.pdf

[mamos]

What does everyone think of the Brumby's takeover.

I am a little concerned as obviously they have paid a lot more than what they initially wanted to purchase it for. However, management must be confident of the significant synergy benefits they can achieve. The bakery franchise posted a $2.0m profit last year, so RFG is buying Brumby’s at 24x earnings, significantly greater than the 15x (forecast) FY2007 earnings multiple the sharemarket has awarded RFG. However, the FY07 multiple is expected to be lower.

What concerns me is that Brumby's is an acquisition more like BB's where there is extensive competition in the market and less like DonutKing where they have the market largely to themselves. BB's has struggled whereas DK has been the main source of growth for the company.

Is anyone concerned with the increased presence of KrispyKreme and Dunkin Donuts affecting DK? These brands only have a limited presence in Australia, but internationally they are quite well known. I am worried that these international brands may become more popular than the Australian Donut King brand. Furthermore, I dont see how international expansion will be successful having to fight these larger brands for market share and franchisees.

The FY07 results will be lower to reflect one-off costs associated with the acquisition of Brumby’s.

I applaud the management of this company for constantly trying to improve earnings per share growth through initiatives such as the centralized donut manufacturing system and coffee roasting facility. However, I am concerned about the industry and whether the donut sector is becomming saturated and furthermore, will competition eat away into profits?

I have yet to check the financials after the acquisition but I can imagine RFG will be loaded up with debt.

[Huang Chung]

I like the acquisition Mamos, but yes, RFG hasn't picked Brumby's cheaply.

Bakery chains like Brumby's and Baker's Delight really seem to be humming in our neck of the woods. I also like the fact that Brumby's have a significant presence outside of the big Westfield type shopping centres.

A friend of mine is currently trying to get set in RFG, but there don't seem to be many sellers wanting to let go of their stock at the moment.

[tommy]

Hi mamos/HC,

I agree with you guys that the acquisition was NOT cheap for RFG, but at least they managed to pull it off as promised in the prospectus.

As for the potential threat from competitors like KK and Dunkin, I think at least in Australia, Donut King has carved out a nice position in every Westfield/shopping center so not too worried about it... Donut King is literally everywhere! On the other hand, you hardly see KK and Dunkin where Donut King operates. As for expansion into overseas, yes, it will be tougher especially if they target Asia due to different tastes and preferences among consumers (as I discussed previously with reference to Mister Donut).

Will RFG consider making some kind of centralized bread making facility for BB and Brumbies, like they have done with coffee roasting facility and centralized donut manufacturing system? This way they can "double dip" into franchisees' revenue.

BTW, does Donut King, BB and Brumbies have a large presence in NZ or are they insignificant there?

[cloggs]

I've seen BBs in shopping centres, and I know of one Brumby, but Bakers Delight seems to have a bigger presence. Can't say I've ever seen a Donu King. Asked my 19 year old son, he'd never heard of it.

[mamos]

Yeah it is a different situation in New Zealand. Baker's delight and other bakery stores like Michel's and Pandorro are more established than Brumbies.

In regard to Donuts Donut King is not really established at all. It is mainly Dunkin Donuts. But all in all there are not many donut stores. I went to Dunkin Donuts today and it was quite busy actually.

[tommy]

Thanx for da info on RFG's presence in NZ guys, highly appreciated!

BTW, Brumby's board has been reshuffled completely

http://sa.iguana2.com/cache/1a68bd29...RFG-189613.pdf

RFG board replaces Brumby's board. Wonder whether this was a good move? Market didn't like it....

[OneUp]

insignificant is indeed the word.... Tommy..

In the Bay Of Plenty ... Tauranga Im only aware of one BB's cafe... (rather busy) donut outlets are very very limited in NZ, a few in shopping complexes is about it.... the markets pretty limited here when it comes to donuts... As Mamos mentioned Bakers Delight has a reasonable present within the market.

Brumbies...... WHO?

AA

Yeah, I've noticed that Dunk'n Donuts hasn't been that successful in NZ. One of their first outlets was opened in Pakuranga some years ago...but it had closed the last time I went out there. At the K Road branch, the subway line is long but hardly anyone goes to Dunk'n Donuts.

I'm not sure why the formula isn't working that well here. If Donut King wants to make a splash, they'll need to make sure they customize the offering to local tastes a bit better than Dunkin' Donuts (how hard can it be to realise a plain donut with solid chocolate coating and sprinkled with chpped nuts is a best seller here?!).

I was at the Warehouse Hypermart at Silvia Park the other week and Brumby's was dead. It's a tough market for bakeries in Auckland.

[mamos]

I sold out of RFG recently, before the correction, although the share price has held up reasonably well despite this. My main reason being I felt that the Brumby's acquisition was too expensive and there are better bargains available in the market than RFG currently.